Dollar-Cost Averaging or Lump-Sum Investing in the Retirement Portfolio? Answering the Question Utilizing Four Decades of Standard & Poor’s 500 Index Performance

One of the key decisions facing those planning for retirement is the choice between dollar-cost averaging (DCA) and lump-sum investing (LSI). One popular comparison using daily data examined a variety of retirement choices during the 1982–2001 period ( Johnson and Krueger 2004 ). Over two decades have passed since the original article was published, allowing for a follow-up covering the subsequent two decades. This report doubles the original sample period by adding the 2002–2021 period to the analysis. The forty-year investment horizon approximates the maximum investment horizon for those planning for retirement. Ending in 2021, the first full year of the COVID-19 pandemic and its challenging financial market conditions, does not favor the lump-sum approach. Review also allows us to reconsider some of the original assumptions and reconsider their validity. This study examines the benefits of DCA on a monthly and quarterly basis, focusing on total returns (i.e., both price and dividends). The results are consistent with the original study’s findings. S&P 500 returns are negatively skewed, creating opportunities to use DCA to one’s advantage when equity prices dip. The yield from DCA exceeds the yield from LSI. However, the inflation-adjusted present value of the $100 annuity ($19,576) invested on January 31, 2001, yields a higher terminal value than either $100 invested monthly or $300 invested quarterly over the subsequent 20 years.